The introduction of perpetual futures to regulated markets has sparked intense debate, with critics warning of systemic risk due to the potential for high-leverage, retail-driven trading. However, this criticism is misplaced, as the true source of risk lies not in the perpetual futures contracts, but in the design of the trading venues. Factors such as leverage limits, margin rules, index construction, and default handling procedures all contribute to the overall risk profile of a derivatives market.
The inherent properties of a no-expiry contract do not pose a systemic risk. Recent deleveraging episodes in the crypto market, including the October 2025 cascade, were triggered by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, and over-leverage. The resulting liquidation cascade was exacerbated by venue-specific design choices, such as manipulable indices and auto-deleveraging mechanisms, which are not inherent to perpetual futures. The key to mitigating systemic risk lies in the implementation of robust venue design and regulatory requirements, including segregated funds, registered clearing entities, and supervisory oversight.
A well-designed venue can contain the risk of default and prevent it from spreading to other markets. The real question is not whether perpetual futures belong in regulated markets, but rather how a given venue is constructed to manage risk. Institutional appetite for perpetual futures may be limited due to their speculative nature and inability to replace traditional futures contracts. However, many institutions use perpetual futures to hedge delta exposure, taking advantage of their liquidity and continuous tradability.
The liquidity edge of perpetual futures is structural, driven by retail demand for no-expiry, continuously tradable contracts. This liquidity can be safely utilized by institutions when paired with robust default management and clearing mechanisms.
The debate surrounding perpetual futures is not about their inherent risk, but about the design of the venues on which they are traded. A well-designed venue can provide a safe and liquid market for perpetual futures, while a poorly designed one can pose systemic risks.
The standard for regulated clearing has been established for decades, and it is this standard that Bullish is working towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse. By implementing a robust clearing model, with a pre-funded guaranty fund and broad loss-sharing mechanisms, the risk of default can be contained and the chain of liquidation cascades can be broken. This approach can turn perpetual futures into a valuable infrastructure for institutions, rather than a source of systemic risk.